Sensitivity Analysis of Portfolio Credit Derivatives by Conditional Monte Carlo Simulation
26 Pages Posted: 20 Jun 2019
Date Written: June 14, 2019
We study sensitivity analysis of portfolio credit derivatives, including basket default swaps and collateralized debt obligations. An unbiased estimator is derived using conditional Monte Carlo for sensitivities with respect to systemic parameters (parameters that influence some or all the entities). Copula-based methods are used to model the joint distribution of the default times. Simulation experiments demonstrate the advantages of the proposed derivative estimator over other methods.
Keywords: simulation, stochastic gradient estimation, credit derivative, conditional Monte Carlo, copula model
Suggested Citation: Suggested Citation
Lei, Lei and Peng, Yijie and Fu, Michael and Hu, Jianqiang, Sensitivity Analysis of Portfolio Credit Derivatives by Conditional Monte Carlo Simulation (June 14, 2019). Available at SSRN: https://ssrn.com/abstract=3404231 or http://dx.doi.org/10.2139/ssrn.3404231
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